The PUC Goes Rogue

Imagine if someone came along and offered you a discount of seven cents per kilowatt-hour on your electric bill.

Seven cents doesn't sound like much, but it adds up. If you use at least 600 kilowatt-hours a month, as many New Hampshire families do, your monthly bill would drop by $42.

In round numbers, that's the difference between taking default energy service from Eversource and buying "Co-op Power" from the New Hampshire Electric Cooperative. In both instances, we're talking about the energy service you get if you don't spurn the utility's electricity and buy it instead from an unregulated competitive supplier.

The default energy service rates currently charged by Liberty and Unitil are even worse. Rounded to the nearest penny, they are 22 and 26 cents, respectively.

This is not the fault of Eversource, Liberty, or Unitil. Having long ago been required by the state's electric restructuring law to sell off their generation assets, each of these investor-owned utilities is buying default energy service power from the wholesale market using a procedure that was been imposed upon them by the Public Utilities Commission (PUC) in quieter times.

Here's how it works. Every six months the utility issues a request for proposals and the price is based on whatever offers happen to come in.

New England's wholesale electricity market is volatile – because the market for natural gas is volatile. If you issue your RFP in a good week you get a good price and if you issue it in a bad week you get a bad price (as apparently happened to Unitil).

In contrast, because its rates are not regulated by the PUC, the New Hampshire Electric Cooperative is free to manage its Co-op Power portfolio actively. The Co-op does not just throw its whole default energy service load into the wholesale market twice a year and hope for the best.

Shouldn't the PUC tell the IOUs (investor-owned utilities) to start acting like the Co-op? The PUC opened a formal investigation last September to look into such questions.

The PUC held a "prehearing conference" in October – odd, because this is an investigative proceeding in which there will not be a hearing. A few days later, the PUC issued a series of written questions for the utilities, which they answered.

Nothing has happened since the utilities filed their answers in November. Meanwhile, default energy service prices have remained in the stratosphere (though, in fairness, Eversource's went down by two cents).

What has the PUC been up to? What could be more important to the state's utility regulators than figuring out how to get a better grip on the price of default energy service?

On January 13, we found out.

That's when the PUC issued a remarkable, 28-page document titled "Report on Energy Efficiency Planning, Programming & Evaluation." It is a full frontal assault on the state's ratepayer-funded energy efficiency programs, offered by the utilities under the NHSaves banner.

For example, the PUC report concludes: "The statutory tests used to determine cost-effectiveness of New Hampshire's EE programming are unique to the State, do not appear to align with industry norms regarding symmetrical balancing of costs and benefits, and are primarily based on predictions, not observational data."

Yeah, it looks like minutia but the main cost-benefit test, developed specifically for New Hampshire and blessed by the PUC at the end of 2019, is the guts of the NHSaves program. That's presumably why the General Court enshrined the "Granite State Test" in statute nearly a year ago.

The PUC Report claims New Hampshire is out of synch with the rest of the country with respect to what discount rate to apply to savings achieved by ratepayer-funded energy efficiency measures. "Discount rate" is economics jargon but you don't need a PhD to understand what's going on.

Apply a really high discount rate (which adjusts the value of future benefits to their present value) and nothing, or almost nothing, is cost-effective. The PUC Report contends that most states use their utilities' "weighted average cost of capital," a sum typically around seven percent per annum.

The discount rate currently used by NHSaves is far lower. We favor two percent.

Recently, Unitil sought to quantify indirect economic benefits of the 4.99 megawatt solar farm the utility wants to build in Kingston. Their consultants — Daymark Energy Advisors — used a discount rate of 2.39 percent because that's the yield on general obligation bonds issued last year by the state.

That, said the consultants, "best approximates the social discount rate for the state." In other words, I asked them the other day, Daymark just made up a number, right? "It's an art," replied co-author Kevin Pierce of Daymark.

Unlike Daymark's report for Unitil, the PUC Report does not contain the name of a single human being. It fell to Councilor Cinde Warmington to smoke out some details at the January 18 Executive Council meeting, when the PUC happened to be on the agenda and PUC Chairman Daniel Goldner happened to be in attendance.

"The commission including the three commissioners all participated in the writing of the report," said Goldner when Warmington inquired about the authors. He also said the PUC had help from its own outside consulting firm, which he identified as "Zellem LLC."

The Executive Council approved the PUC's contract with Zellem LLC last September. The principal of Zellem LLC is Michael R. "Mac" Zellem, former budget director to Governor Sununu.

Let's get the obvious question out of the way first. There is absolutely no evidence that Governor Sununu is implicated in any of this. Like everyone else in state government, the Governor confronts a lot of staff turnover. What his former employees do is beyond his control.

The problem, however, is the process employed by the PUC. It stinks.

Particularly since the creation of the Department of Energy in 2021, the PUC has one job: adjudicate, much like a court. By signing on to the Zellem Report, the three PUC commissioners have now fatally compromised their impartiality and, I respectfully suggest, must disqualify themselves from ruling on the Triennial Energy Efficiency Plan the utilities are scheduled to file in July.

All of this could have been avoided had the PUC focused instead on the ongoing crisis known as default energy service. Utility ratepayers – even utility shareholders – deserve better.